Representatives from some 60 companies in the U.S. and overseas tuned in Feb. 27 to the Green Markets 2008 Agriculture and Fertilizer Outlook audio conference. The interactive event allowed registrants to listen and pose questions via telephone to three industry experts who talked about a range of issues, including the latest planting estimates for 2008, the unprecedented fertilizer pricing and supply volatility, and the use of risk management strategies for retailers facing tight fertilizer supplies and escalating prices.
Dr. Gerald Bange, chairman of the World Outlook Board for USDA, kicked off the event with an in-depth look at the most recent acreage estimates for major crops in 2008 and beyond. Bange said USDA is estimating corn acreage this year at 90 million acres, down from 2007’s 93.6 million acres. Soybean acreage is projected at 71 million acres, more than 7 million acres higher than last year’s 63.6 million acres. All wheat acreage is currently estimated at 64 million acres, also up from last year’s 60.4 million acres, but cotton and rice are expected to see acreage drops in 2008, to 9.5 million acres and 2.7 million acres, respectively.
Bange said USDA is “cognizant of the sharp increase in fertilizer prices,” but noted that the “net return on corn is still profitable” even with the drastically higher input costs. He also outlined U.S. corn planting projections for roughly eight years out, noting the effect of the new biofuels mandate calling for 15 billion gallons of corn-based ethanol production by 2015.
Tom Blue, senior fertilizer industry consultant for Blue, Johnson and Associates, detailed the “unprecedented rate of increase” in pricing for N, P and K fertilizers, noting that the volume of change in recent years even outstrips the increases observed in the early 1970s. Blue outlined in detail the factors driving these market conditions, including international demand, global capacity, and costs for raw materials, transportation and new construction.
Blue used a sports analogy to describe the current pricing and supply concerns and the day-to-day volatility, asking “how high can you jump, and what’s your hang time?”.
Bruce Vernon, sales and marketing manager for Mid Kansas Cooperative, concluded the panel discussion with a look at how these market variables have impacted the retailer. Vernon presented graphics showing what the rapidly firming prices have done to the retailer’s buying power, and offered numerous strategies to deal with the pricing and supply risks inherent in today’s market. Vernon said a better alignment is needed between the manufacturer, the retail dealer and the consumer.
Some industry veterans contacted by Green Markets after the conference were split on the 90 million acres indicated by USDA. Dr. John Douglas of Douglas Associates stood by his number of 88 million acres, which has been the general mantra of the fertilizer industry for months. Douglas questioned whether there would be enough land available for corn to accommodate the 90 million acres, citing high prices for other major crops, particularly wheat. He said farmers will plant wheat when it is $14.00 a bushel. Another factor concerning Douglas is the long, drawn-out winter that has been the case for much of the Corn Belt.
“Given the ever rising futures price for corn, 90 million acres is not out of the ball park,” said Ed Wheeler, industry consultant, known for his “fearless forecasts.” “While I know that USDA forecasts are generally pretty accurate, my bones tell me, weather cooperating, that we will exceed this mark by one-two million acres.”